Flextronics and Supply Chain Management Presentation. This presentation is about Flextronics and how they moved from the CM -> CDM -> ODM servcies. Very interesting to see that they are very good at ODM at this time.

1. MGB-282
Supply Chain Management
Flextronics
By:
Jose Vega
Rob Blakely
Suresh Madhuvarsu

2. Agenda
1
• Flextronics Overview
2
• CM, CDM and ODM Timeline
3
• Key Case Issues
4
• Beyond the Case

3. Global Supply Chain Enabler
~$24 Billion in Annualized Revenue
200,000+ Employees Globally; 20,000 Logistics/Services
~120,000 Employees in Asia (~90,000 in China)
Operating in 30 Countries; 27M Sq Ft of Capacity; 9 Industrial Parks

4. Service Model
Design. Build. Ship. Service.
• Flextronics employs over 4000 design • Flextronics runs 9 industrial parks • Flextronics is involved in doing BTO • Flextronics Global Services is the
engineers. around the world focused on building and CTO for many of the most global repair leader for electronic
• Flextronics owns 364 patents the worlds leading technology complex technology products in the products servicing 30M cell phones,
products. world from industry leading 2M laptops, 9M PCBA’s, and 2M game
companies such as Cisco, HP, Huawei, consoles phones per year.
Capabilities Lenovo, RIM, Juniper, and many
Capabilities • Global Services’ sites dedicated to
• Industrial Design others. Service Parts Logistics process and ship
• PCB/Flex Circuits
• System Architecture over 12M spare parts for customers
• Optomechatronics every year.
• Mechanical Design Capabilities
• LCD Displays
• Embedded • Build-to-Order (BTO)
System Design • Cables Capabilities
• Configure-to-Order (CTO)
• Software Systems • Machining • Repair/ Refurbishment and Warranty
• Distribution and
• Product Launch/NPI • Plastics Direct Fulfillment Support
• DFx Services • Metal Fabrication • Outbound Logistics • Service Parts Logistics
• SMT Assembly and Hubbing • Remarketing
• System Integration • Retail Technical Services (RTS)
and Final Test • Asset Recovery
• Reverse Logistics

5. Powerful Flextronics Differentiator
Americas Europe Asia
Guadalajara, Mexico Tczew, Poland Chennai, India
Juarez, Mexico East Hungary Doumen, PRC
Sorocaba, Brazil West Hungary Shanghai, PRC
Operations revenue breakout by country:
9 Month Sales %
China $6,252,200 34%
Mexico $2,665,900 15%
U.S $2,531,400 14%
Malaysia $1,808,500 10%
Hungary $1,197,900 7%
Other $3,714,700 20%
Sustainable Growth – Limitless Scale, Repeatable Execution Total $18,170,600 100%

6. Customers*

7. Products*

8. Agenda
1
• Flextronics Overview
2
• CM, CDM and ODM Timeline
3
• Key Case Issues
4
• Beyond the Case

9. • Original Electronics Manufacturer (OEM)
– “Turnkey”: they did everything
Manufacturing,
Product Design Distribution and
Assembly, and
and Marketing Sales
Testing

10. Birth of EMS
OEMs start outsourcing to Electronics
manufacturing Services (EMS) in the 80s into the
90s. Why?
1. Core Competencies (Strategic): OEMs better and
design and marketing. (better access to customer
data?)
2. Economies of Scale (Economic): EMS firms could
leverage their fixed assets more efficiently than the
individual OEMs.
3. Broad Geographic Presence (both Strate and Econ):
Reduced risks of OEMs from manufacturing in one
place.

11. Industry in 1980s into 90s
OEM • Product Design
• Manufacturing,
EMS Assembly, and
Packaging
OEM • Sales and
Marketing

12. EMS Industry Growth in 90s
• OEM growth, especially in electronics, meant
more outsourcing to EMS for their manufacturing
needs
• EMS companies rapidly expanded, usually
through the acquisition of underutilized OEM
manufacturing plants (they don’t have economy
of scale)
• Many acquisitions involved companies with
significantly cheaper labor (e.g., China) – as much
as 75% cheaper compared to U.S. and Western
Europe

13. Two Segments of EMS firms
Contract Design and Manufacturing
(CDM)
Product
Design and Contract Manufacturing (CM)
Engineering
Manufacturing and Packaging and
Supply Chain Assembly Distribution?
and Logistics

14. Original Design and Manufacturing
• As EMS firms tested the CDM model and became more vertically
integrated upstream, they started to infringe upon the territory of
Original Design Manufacturers (ODM)
• ODMs would initiate a new design and market the finished product
to OEMs.
• The model allowed ODMs to colocate design and manufacturing.
The ODM already knows the design aspects of the manufacturing,
so they can pass on that knowledge, which makes things more
efficient. In the end you’re able to design something that you know
you can manufacture efficiently and ultimately remain competitive.
• After studying the model of ODM in Taiwan, Flextronics VP notices
that because notebook computers are commoditized the OEMs feel
comfortable purchasing completed products from ODMs

15. Agenda
1
• Flextronics Overview
2
• CM, CDM and ODM Timeline
3
• Key Case Issues
4
• Beyond the Case

16. Top CM Firms - Sales
$20,000
$18,000
$16,000
Total Sales (Millions $)
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
1997 1998 1999 2000 2001 2002
Flextronics $640 $1,335 $3,952 $6,959 $12,109 $13,104
Solectron $3,694 $6,102 $9,669 $14,137 $18,692 $12,276
Celestica $2,006 $3,249 $5,297 $9,752 $10,004 $8,271
Jabil Circuit $987 $1,484 $2,238 $3,558 $4,330 $3,545

17. Top CM Firms - Profit Margin
10.0%
5.0%
0.0%
Profit Margin (%)
-5.0%
-10.0%
-15.0%
-20.0%
-25.0%
-30.0%
1997 1998 1999 2000 2001 2002
Flextronics 1.8% 1.6% 1.3% 2.3% -3.7% -1.2%
Solectron 4.3% 4.1% 3.6% 3.5% -0.7% -25.3%
Celestica -0.3% -1.5% 1.9% 2.1% -0.4% -5.4%
Jabil Circuit 5.3% 3.8% 3.8% 4.1% 2.7% 1.0%

18. Top ODM Firms - Profit Margin
20.0%
18.0%
16.0%
14.0%
Profit Margin (%)
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1998 1999 2000 2001 2002
Hon Hai 13.8% 12.8% 10.6% 8.5% 6.5%
Quanta 17.7% 12.3% 9.4% 10.6% 7.6%
Compal 13.1% 11.5% 8.0% 7.0% 6.8%
Acer 4.4% 5.7% 9.6% 1.1% 8.1%

19. Yr/Yr Sales Growth - CM vs. ODM
50%
40%
30%
Sales Growth (%)
20%
10%
0%
-10%
-20%
-30%
1999 2000 2001 2002
CM 42% 39% 24% -21%
ODM 29% 23% 28% 30%

20. 15.0% Average Profit Margins - CM vs. ODM
10.0%
Profit Margin (%)
5.0%
0.0%
-5.0%
-10.0%
1998 1999 2000 2001 2002
CM 2.0% 2.6% 3.0% -0.5% -7.7%
ODM 12.2% 10.6% 9.4% 6.8% 7.3%

23. Cell Phone Comparison
$80 $80 $78
$75
$80 $72 $69
$70
$60
$50
$40
$30
$20 $9
$5 $8
$10
$0
CM CDM ODM
Revenue $80 $80 $78
Cost $75 $72 $69
Profit $5 $8 $9

24. Key Issues to consider for an ODM
 Hiring and developing new people
 The location of the design department
 Relationship with customers

25. Cost & Benefits of becoming an ODM
Benefits
 Aligned
 Agile
Costs
 Added risk

26. Agenda
1
• Flextronics Overview
2
• CM, CDM and ODM Timeline
3
• Key Case Issues
4
• Beyond the Case

28. IDC’s EMS and ODM Revenue Growth Forecast
US$B
$350
$329
EMS + ODM Revenues
$310 $301
$280
$274
$267
$270
$249
$229 $233
$230
$191
$190
$150
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IDC, Nov 2009

29. Growth Potential & Market Position
TOTAL FLEX FLEX MARKET
FLEX Portfolio TOP CUSTOMERS
MARKET RANK SHARE
INFRASTRUCTURE
$34B No. 1 31% Cisco, Huawei, Ericsson
INDUSTRIAL
$25B+ No. 1 14% App Materials, Siemens, Philips
MEDICAL Boston Scientific, Medtronic, Agilent,
$8B No. 2 10%
Johnson & Johnson, Smith & Nephew
ODM COMPUTING
$101B No. 7 1% HP, Lenovo, Dell
MOBILE & CONSUMER RIM, LG, Microsoft, Sony, Philips,
$44B No. 2 19%
Kyocera, Motorola, Sharp, Toshiba
COMPONENTS Apple, RIM, Motorola, Honeywell, Cisco,
$109B N.A 2%
Huawei
SERVICES Apple, Dell, Verizon, Avaya, HP, Cisco,
(Excluding Freight) $22B N.A 7%
Juniper, Toshiba, Huawei
Source: IDC, Prismark, Micro-Tech Consultants, Display Search, TSR, Blumberg Advisory, FLEX estimates

30. ODM and EMS Markets
Ethernet switches & routers
1 INFRASTRUCTURE Broadband access
equipment
Servers and storage
Customer premise equipment
Set-top boxes
Optical transport equip.
Telephone switching &
PBX equipment
Capital equipment
Automotive Energy/Solar
2 INDUSTRIAL
Appliances
Smart grid
meters/controls
Aerospace
Defense
Self service –kiosks
Consumer diagnostic Disposable devices for
3
Lab/Life science equipment
devices wound management
MEDICAL Diabetes products
Imaging & Patient monitoring
Catheters
Diagnostic equipment
Drug delivery devices Instrumentation
4
PC Desktop All-In-One Servers
Netbooks
COMPUTING (ODM) Desktop All-In-One Storage
Notebooks
Smart phones Digital cameras Audio & Video
5 MOBILE & CONSUMER Cellular handsets
Data cards
Embedded modules
Gaming consoles
Print & Copy
Security tags
equipment
Including flat panel TVs,
DMPs and audio
accessories

31. Q&A
Thank You !